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The risky business of properties with unconsented work: Can they be a bargain?

“So I have been to five open homes today, and with all five houses the agent informed me they had unconsented work – is this normal”, a recent post in a first home buyers Facebook group asks.

The shocked post generated numerous responses which indicate that listings featuring unauthorized work are not unusual, and experts confirm this is the case, and that buyers need to be aware of the risks.

It is hard to pin down the figures on this, with searches of residential properties with unauthorized work run earlier this week generating nine listings on Trade Me Property and just four on Realestate.co.nz.

But Nick Gentle, co-owner of iFindProperty, a nationwide buyers’ agency for investors, has been involved in many property transactions, both buying and selling, with unconsented work, and he says it is far more common than people think.

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Unconsented work he has encountered ranges from dodgy en suites, to bedroom conversions, to wall changes, to piling issues. One property he helped sell had a carport added in the 1980s but not signed off, and which was later turned into a bedroom without consent.

It was unconsented work on unconsented work, he says. “We looked at fixing it, but it was too close to the boundary, so there was a high chance the council would say it had to be removed and returned to the original state.”

It was sold as it was eventually, but the issue reduced the sale price significantly as there were fewer bedrooms than advertised, and several sales fell through first.

For buyers, it is a big issue for insurers, who do not like risk, he says. “And if it impacts on your insurance, it will impact on the lending you are able to get on a property. So depending on the nature of what has been done, it can present big problems.”

Unconsented work can be fixed up, and receive a certificate of acceptance from the local council.

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Unconsented work can be fixed up, and receive a certificate of acceptance from the local council.

If a buyer does want to purchase a property with unconsented work, and has a plan to fix it, it is possible to get Project Works insurance, which provides cover for six months while the issue is sorted, but the work has to be done, he says.

“All repairs need to bring the work up to the current code, but the nature of the work does make a difference, so minor work can be fixed more easily, and with fewer hassles.”

Properties listed with unauthorized work can be a great opportunity for investors, Gentle says. “But they tend to scare away owner-occupiers, particularly in a softer market, such as this onewhere buyers have lots of choice.”

Significant price reductions on such properties are attractive to some buyers, but Kristina King, from Duncan King Law, says there are just too many risks with such purchases.

A buyer might think they are getting a bargain, but taking on someone else’s problem is never a bargain, she says.

“Insurance and lending can be affected, and your ability to refinance and to sell is affected. You might have a situation you can’t fix, and the council might require you to take the work out.”

But sales transactions involving unauthorized work are common, as well it is rife in older houses as, in the past, many homeowners took a DIY approach to their properties and did not consider it the council’s businessshe says.

“Properties for sale did not use to be investigated to the extent they are now. It goes well beyond a LIM report, it is about looking at the property’s files, original building plans, and more. So a lot more is coming out, and lawyers look at deals more closely.”

If a buyer loves a house with unconsented work, it is possible to get the work up to code, signed off as safe and sanitary, and get a certificate of acceptance from council, although sometimes that is not feasible, King says.

“What buyers should not do is buy such a house, and not disclose the issue to their lawyer, who has to tell the bank, or to the bank. That is a terrible way to try and get around the issues, and it will come back to bite them at some point.”

Lawyers did not like to be deal killers, but it is important buyers are informed about unconsented work, and are made aware of the risks that come with it, she says.

Disclosure is key in this area, and Real Estate Authority chief executive Belinda Moffat says agents must disclose to buyers any relevant issues or defects, including lack of consents, with a property that they are aware of.

Real Estate Authority chief executive Belinda Moffat says when selling a property, honesty is the best policy.

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Real Estate Authority chief executive Belinda Moffat says when selling a property, honesty is the best policy.

The agent has to have the permission of the seller to disclose issues to buyers, but if the seller will not give permission, the industry’s code of conduct requires the agent to walk away from the listing, or risk a complaint and disciplinary action, she says .

“When selling a property, honesty is always the best policy. Sellers need to share all relevant information with their agent and with prospective buyers, including unconsented building work.

A seller acting in good faith should put themselves in the shoes of the buyer and think about what they would like to know if they were buying the property.”

Buyers should get a LIM report on a property they are interested in, and Moffat recommends buyers should also get a property inspection report from a qualified building inspector before committing to a sale.

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